To expand on this a bit: I recall seeing that, if at the end of each year, you moved your money into the mutual fund that had the highest return during that year, in the next year you would have averaged -40% returns. Negative 40%.

Yeah, this isn't a mutual fund. Yeah, it's not directly applicable. But chasing previous returns is a way to lose money, not gain it.

"If it's a bubble it's a terrible idea to allocate a few percentage points to it."

Why? The word 'bubble' has negative connotations, but the flip side is the only opportunity of a great multiplier on your investment in a short time is during a bubble. Caveat of course, you can lose a lot of money, but that's why you allocate 1% of your portfolio so you can still survive.

Well part of that is how we define bubble, since it can only be post hoc, then by definition a bubble is bad since you're going to lose your money when it pops.

But basically it's because we don't try to time the market in that sort of way. Bubbles are great if you can sell right when you need to and (1) Bitcoin is fucking godawful at that and (2) we don't want to try and do that. Better to invest long term and ride an economic wave.

Timing in the sense of "we think European stock are going to do well so we'd likely to slightly increase the allocation across our portfolios" is alright but timing in the sense of "we think we can buy a new type of highly volatile asset with no underlying fundamentals and which doesn't fit neatly into any of our extant asset classes and sell it before it goes bad even though we can't do the same thing with regular old GE stock" is really bad.

Think of it this way, would you ever put 2% of your IRA on a roll of the craps wheel? No, because that's not what that account is for.

EDIT: Maybe a better example would be like buying TSLA options. You wouldn't do that in a portfolio because it's volatility for basically no reason.

To be fair, I don't think your comparison to the craps wheel is fair. From a risk level, it's probably less risky than any form of angel investing.

Yeah I thought about that so I edited the comment to compare to TSLA options, bad timing, should've thought more before I submitted. To be fair though, it's my opinion that angel investing is also basically a craps wheel but I might be in the minority on this board in that opinion.

I don't disagree with that, but by that definition, no investor should be taking any above average risk. I think being aggressive with a few percentage points of your portfolio on "long shots" or high risk stuff is not necessarily bad.

We have no idea how far cryptocurrencies will run. There will be corrections along the way, but if it actually is a major bubble it might very well run up to $10tn in market cap before we see a major correction.

But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.

>We have no idea how far cryptocurrencies will run. There will be corrections along the way, but if it actually is a major bubble it might very well run up to $10tn in market cap before we see a major correction.

Come on man... That number is straight from your ass.

>I don't disagree with that, but by that definition, no investor should be taking any above average risk. I think being aggressive with a few percentage points of your portfolio on "long shots" or high risk stuff is not necessarily bad.

Not necessarily, it's more about minimizing timing risk. If you think Bitcoin will continue to run up in some sort of Keynesian-Beauty-Contest-Unpoppable bubble and/or is the new gold or what have you then yeah as a long term investment, cool. Most people don't think that though.

>But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.

None of these numbers come from anywhere though. The real answer is that with crypto you're putting ??% of your capital at risk for a potential ? to ?x return. There's no numbers to pin on anything, it's completely baseless. It's like a currency in that respect, it's only worth what people think it is with no underlying fundamental. You can't quantify anything about it because it's based on the psychology of individual investors and the sociology of investing groups. If some guy in Barron's wrote a really good and well researched article about how bitcoin is bad because it can't scale and you really need one of the scaling coins and you should get out now because BTC valuation is only based on there being a greater fool after you and so on the thing and if some guy on reddit wrote the same thing you don't think the price would dip? Of course, BTC is a meme, it only works because people believe in it. So how much do you want to bet on other people buying into it?

> It's like a currency in that respect, it's only worth what people think it is with no underlying fundamental.

This is my biggest concern with Bitcoin right now. There doesn't seem to be any rational way to justify or explain its price.

How would someone go about making the argument that Bitcoin is over or undervalued at $10, or $100, or $100K? What's the justification?

Even currencies have far more fundamentals. Currencies at least represent faith in the governments that issue them, and those governments' ability to pay treasury bonds and manage inflation. I have never heard a good explanation for what the price of Bitcoin should be in terms of USD.

No idea how big the bubble grows before it bursts, or where it ends up afterward.

I found the risk/reward to be worthwhile, but I'm not risking what I can't afford to lose.

Because when a bubble bursts money has just been moved around but there's no net increase in wealth. Expected value is close to zero.

Which is why you need to have a clear exit point, not keep your money in forever. Fortunes were made (but also lost) during the dot-com bubble.

If Bitcoin were to crash, you wouldn't be able to exit. The exchanges would be overloaded, the price would collapse while you[1] can't trade, and you may also discover that some of the exchanges have stolen your money because they are insolvent.

[1] Although some whale customers may be able to. They may win big - or at least, lose less, at your expense.

Between now and the event horizon, there may be considerable opportunity.

I mined some bitcoin in the early days, when you could solo-mine for a week or so and net coins. I had a handful of coins that I cashed out for less than $100, because I didn't like Bitcoin as a long-term investment. If I'd sold half, I'd have made a tidy profit off the sale of the first half, with another handful of coins that, even if they tanked, I'm still in the black. But, if they go to some ridiculous number, like $10,000, I'm substantially better off.

Needless to say, I didn't save half, but even for people buying in now (I'm not), could end up doing well, even if the trajectory of BTC is $15k, $20k, $45k, $0, Of course, if the trajectory is $15k, $10k, $5k, $0, they'll be shit out of luck.

Exactly this. During the subprime crisis, even the big banks couldn't offload their risk.

It's crazy to think an amateur investor in Bitcoin is going to be able to "keep the exits clear". By the time you see the downturn those exits are long gone.

Banks and large investors need to offload billions of dollars worth of assets. Orders of magnitude more than what the average amateur will generally be working with.

If an amateur can actually guess when the downturn starts (a really big if), they should not have much of a problem exiting. Even if a large investor can identify the downturn, if they try to exit quickly, they will probably just exacerbate the problem, without even being able to get all the way out themselves

Yeah, but now you're trying to time the market. That's... a less than optimal strategy.

Of course, you need to rely on luck in a bubble. There's never any guaranteed returns in anything with a possibility of a high return.

Exactly. Soros has said that bubbles are when the biggest trading gains are possible.

>>If it's a bubble it's a terrible idea to allocate a few percentage points to it.

If I had $100 million, I wouldn't have any issues with investing $2-3 million in Bitcoin just for shits and giggles.

The idea is that when you have boatloads of money, you don't have to be risk-averse, as the marginal utility of each dollar you have is very low.